Lotteries in the United States: An Overview

Chad Hills (A revision of Ron Reno's original feature)

Lotteries cost more than states bargain for and fall short of promises made.

Many regard lotteries as a relatively benign form of gambling. However, 31% of callers to the 1-800-GAMBLER national hotline (operated by the Council on Compulsive Gambling of New Jersey) indicate otherwise.¹ According to the North American Association of State and Provincial Lotteries, state-run lotteries combined are a $42 billion per year business (or tax revenue) for state governments in 2002. Unfortunately, the majority of lotteries fall short of promises made, and the social costs often are greater than citizens realize.

Advertising
State lotteries spent approximately $466 million on advertising and promotional costs in 2002.² Much lottery advertising is misleading; some is downright dishonest. The New Republic offered one example: “Take a current Washington, D.C., lottery ad campaign for D.C. Daily Millions. The slogan is ‘A Million a Day--Just Play.’ D.C. Daily Millions would be more accurately titled D.C. Daily Thousands: no one has won more than $5,000 in the history of the game.”³ The same article also noted that lotteries typically advertise only the top prize, which can run into the tens of millions of dollars, and then give the odds of “winning” the lowest prize, often another lottery ticket.⁴ Kentucky has a 'shelf talker' targeted for the coffee section of the supermarket that says, ‘If you want a real jolt, play Scratch-offs.’"⁵ Additionally, state lotteries are exempt from Federal Trade Commission truth-in-advertising standards.⁶

Duke University professors Charles Clotfelter and Philip Cook note six common tactics commonly used in lottery advertising:

• Overemphasize the chance of winning. In 70% of TV ads studied, those pictured playing the lottery won.
• Design games so as to disguise the true odds, as well as to give the impression of a greater possibility of winning.
• Ridicule doubters.
• Encourage the false notion that there is an element of skill in playing the lottery.
• Encourage players to minimize regret. Remind them of how bad they would feel if they missed playing the lottery on the day when their numbers “hit.”
• Provide misleading information about the true odds, or don’t provide any information at all.⁷

Corruption
GTECH Corp., the world’s largest supplier of lottery products and services which is involved in the over 94 percent of the instant ticket sales in the United States.⁸ Today, GTECH's online system handles an average approximately 280 million transactions per day in one average-size U.S. state alone.⁹ GTECH has been hounded for years by allegations of corruption and improper practices. A London jury found that GTECH chairman Guy Snowden attempted to bribe a competitor regarding the operation of Britain’s National Lottery.¹⁰ Snowden subsequently resigned.¹¹

A four-month investigation by Fortune magazine concluded: “Rare is the company that has faced as many allegations of baldly sleazy conduct as GTECH. Most recently, early this October, in a federal courtroom in Newark, New Jersey, the company’s former national sales manager, 49-year-old J. David Smith, was convicted of orchestrating a kickback scheme using inflated payments to state-level political consultants. The conviction brought down a man who almost single-handedly led GTECH to its current position.”¹² Litigation against GTECH continues today.¹³

Educational Funding
Lotteries are often promoted as a way to boost school funding. More than half of all state lotteries earmark lottery revenues for education.¹⁴ However, a study conducted by Money magazine discovered that states without lotteries actually spend a greater percentage of their budget on education. Further, since 1990, spending devoted to education has actually decreased in lottery states, while increasing in non-lottery states during the same period.¹⁵

After studying lottery-aided educational funding, two St. Mary’s College (Notre Dame, Ind.) professors concluded: “Regardless of when or where the lottery operated, education spending declined once a state put a lottery into effect. ... This study indicates that states without lotteries actually maintain and increase their education spending more so than states with lotteries. ... Hence, citizens should recognize that claims that lotteries will improve education funding are likely to be as misleading as their odds of winning those lotteries are meager.”¹⁶

Florida and New York, among a number of other states, have both experienced the fallout of false "educational funding" promises. "We can't help but be reminded of the disappointment of the lottery itself [Florida lottery], which observed its 15th anniversary this month[January 2003]," the Lakeland Ledger reported in Florida. "[T]he lottery was sold to voters as a means of bolstering existing education funding. In the end, lamentably, lawmakers used the lottery windfall to supplant education tax dollars that were siphoned off into other programs and agencies. The result? Today, education funding continues to be inadequate and one of the big reasons lawmakers are ballyhooing the benefits of video gambling."¹⁷

In New York, the State Comptroller's report reads, "By dedicating it [New York lottery proceeds] to education, there is an implied promise that the lottery will increase school aid. … This has never happened in New York. … Lottery money has never supplemented state aid; it doesn't today and it likely never will. … In New York, as in many other states, lottery earnings have been earmarked for education primarily as a public relations device. The opposition that arises from the use of gambling proceeds to fund government services is deflected by pointing to the worthy purpose that the lottery funds."¹⁸

In 1997, Georgia H.O.P.E Scholarships were given to 392,764 citizens [from lottery proceeds]; however, nearly 17,700 Georgia adolescents experienced severe problems with gambling addiction, while an additional 39,100 to 56,800 adolescents in Georgia were at risk for developing gambling related problems.¹⁹

Evolution of Lottery Games
Lotteries have shifted noticeably in recent years toward games that more closely resemble casino-style gambling. Forms of lottery gambling such as video lottery terminals (VLTs) have proven to be highly addictive — the "crack cocaine" of the gambling industry. Robert Hunter, a nationally recognized expert on gambling addiction and head of the gambling treatment program at Charter Hospital in Las Vegas, believes that "[L]awmakers need to factor into their analysis something that has received little attention thus far: that video gambling machines are 'the crack cocaine' of gambling because they are so addictive."²⁰

Five years after the introduction of VLTs in Oregon, the number of weekly Gamblers Anonymous meetings in the state rose from 3 to more than 30.²¹ After almost a decade of legalized video gambling, South Carolina's Governor outlawed all 34,000 video poker machines [nearly identical to some modern VLT games] in the year 2000, only after multitudes of children, adults, marriages and families had ingested the poison of gambling addiction.²²

In South Dakota, the number of individuals seeking treatment for a gambling addiction dropped dramatically after a court-ordered temporary shutdown of VLTs in that state. Within days after the machines had been turned back on, the numbers of individuals seeking treatment rose sharply.²³ Dave Nelson, a South Dakota State attorney says "Video lottery is making criminals out of people who would not otherwise be involved in the criminal justice system."²⁴

Fate of Lottery Winners
Even many of the “winners” of state lotteries end up losers in the long run. According to an article in the New York Post: “About once a month on average, a hapless millionaire winner of one of the 37 [currently 40] state lotteries goes bust and files for bankruptcy, experts say. That’s the rags-to-rags fate of about one-third of all winners.”²⁵

Further, winning the lottery does not seem to satisfy the desire for riches. Duke University professors Clotfelter and Cook found that lottery jackpot winners substantially increased their spending on lottery tickets after winning.²⁶

Heavy Play
Clotfelter and Cook report that 10% of lottery players account for 50% of lottery purchases. The top 20% of players account for 65% of purchases.²⁷

Marketing Practices
There are some indications that lotteries use sophisticated marketing techniques to encourage reckless betting behavior. In July 1997, the Rocky Mountain News reported: “The Colorado Lottery is studying our brains to figure out ways to lure us into gambling. The lottery spent $25,000 for a study called Mindsort to analyze the left and right sides of the human brain to understand how to manipulate player behavior. Officials say they aren’t trying to hook people into playing the lottery. But page 15 of the Mindsort report ... describes certain people as less likely to begin playing, but ‘once hooked, hooked.’”²⁸ But the exploitation of human weakness has not deterred the growth and promotion of state-run lotteries, as state governments continue to raise revenue by encouraging their citizens to make poor choices.

The lottery marketing industry is placing more emphasis on instant ticket sales largely because it is an "impulse purchase." Stand-alone machines are also becoming more prevalent, and retail-site research dictates where the machines will sell the most tickets (often in liquor stores, grocery stores and convenience stores). In the past two fiscal years, the Lottery has distributed over 1,500 neon signs to the liquor and convenience channels, of which it has 10,000 outlets.²⁹

Poor
Lotteries place a disproportionate tax burden on the poor. Examples abound:

• The 32 Colorado counties with the highest per-capita lottery sales all have per-capita income levels below the state average.³⁰
• In New York, a Newsday study showed that those living in the most impoverished areas of the state spent eight times more of their income on lottery tickets than did those living in the most affluent sections.³¹
• The three poorest counties in New Mexico all rank among the state’s top 10 counties in per-capita lottery sales. New Mexico’s wealthiest county accounts for the fewest lottery ticket purchases per resident.³²
• An Associated Press survey of Wisconsin lottery purchases found that residents living in the poorest neighborhoods in the state spent, on average, four times as much of their income on lottery tickets as did those in wealthier neighborhoods.³³
• A University of Louisville study showed that Kentuckians with annual incomes less than $15,000 spent $9.23 per week on lottery tickets, while those earning above $35,000 spent only $7.36.³⁴
• A Texas A&M study found that the lowest-income group of Texans, who earn only 2% of the state’s total income, provide 10% of the lottery’s revenue.³⁵ Studies show that lottery play is more common among blacks and Hispanics than white, among laborers and service workers than advanced professionals, and among those without a high school degree than college graduates.³⁶

Recruitment
Clotfelter and Cook “conclude with considerable confidence that the lottery is a powerful recruiting device, which in 1974 was responsible for inducing about one-quarter of the adult population who would not otherwise have done so to participate in commercial gambling.”³⁷

By making lottery opportunities more available (increasing the number of retailers and VLT's) and accessible (placing machines in grocery stores, convenience outlets and high-traffic locations), the speed and instant gratification of scratch tickets and VLT's further serve to increase addiction.

Targeting the Poor
Many lotteries aggressively market to the poor. Following is an excerpt from an advertising plan for the Ohio SuperLotto game: “We recommend that promotional ‘pushes’ be targeted as early as possible in the month. Government benefits, payroll and Social Security payments are released on the first Tuesday of each calendar month. This, in effect, creates millions of additional, non-taxable dollars in the local economies of which the majority is disposable.”³⁸

Some lottery advertisements are overt in their solicitation of the poor. Perhaps the most infamous example is the Illinois lottery advertisement in an impoverished Chicago neighborhood, which read: “This could be your ticket out.”³⁹ Another advertising campaign in the 1980s by the Illinois lottery consisted of 40 billboards reading: “How to Get from Washington Boulevard to Easy Street.” Washington Boulevard, and other streets mentioned in these ads, are located in a very depressed westside Chicago neighborhood.⁴⁰

In many states, such as Florida, lottery outlets are actually more concentrated in impoverished neighborhoods than wealthy ones.⁴¹

Work Ethic
Harvard Professor of Government Michael J. Sandel writes: “With states hooked on (lottery) money, they have no choice but to continue to bombard their citizens, especially the most vulnerable ones, with a message at odds with the ethic of work, sacrifice and moral responsibility that sustains democratic life. This civic corruption is the gravest harm that lotteries bring. It degrades the public realm by casting the government as the purveyor of a perverse civic education.⁴²

"They [state governments promoting lotteries] must persuade their citizens that with a little luck they can escape the world of work to which only misfortune consigns them," writes Ellen Ratner of WorldNetDaily. "Gambling destroys the connection between success in life and the real means of achieving it — hard work."⁴³

"If you ask kids today how to make $1 million, they'll say win the lottery. Twenty years ago, they would have said work hard," states James Maney, the executive director of the New York Council on Problem Gambling.⁴⁴

Youth
According to Durand Jacobs, a professor of psychiatry at Loma Linda University Medical School in Riverside, California, teen gambling spikes significantly in states that launch lotteries. State-run gaming lends an air of credibility to behavior that might otherwise be considered risky. Having studied adolescent gambling for years, Jacobs found that most children gamble first with parents or family. Unfortunately, adolescents are five times more likely to have gambling problems compared to adults.⁴⁵

A Louisiana State study of Indiana adolescent gambling, released in the summer of 1999, found that about 60 percent of Indiana adolescents had played instant lottery games. "The major problem with vending machine sales is it is awfully difficult to enforce the legal-age requirement," said Reece Middleton, one of the authors of the study. "Have you ever been to a convenience store when school lets out?" he asked. The stores can be packed with children, and the clerks have their hands full manning cash registers.⁴⁶

Earlier surveys in various states show that a high percentage of under-age adolescents play the lottery: Louisiana (32%)⁴⁷ Texas (34%)⁴⁸ Connecticut (35%)⁴⁹ Massachusetts (75%)⁵⁰

Lottery retailers in many states are lax in enforcing age regulations. An experimental survey published in the Journal of Gambling Studies found that a 16-year-old girl was able to purchase a lottery ticket from 49 of 50 central Illinois lottery retailers at which she attempted to buy one.⁵¹





Acknowledgment:
Ronald A. Reno, the former Gambling Research Analyst for Focus on the Family, first created this feature article in 1998. Since then, however, the landscape of gambling in the United States has changed significantly, and updated material now replaces a portion of Ron's original text.



View state-by-state lottery data tables listing revenues, profits, state deficits, etc.

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